EBA publishes results of the Basel III monitoring exercise as of end 2012

The European Banking Authority (EBA) publishes today its fourth report of the Basel III monitoring exercise on the European banking system. This exercise, run in parallel with the one conducted by the Basel Committee on Banking Supervision (BCBS) at global level, allowed to gather aggregate results on capital, Risk Weighted Assets (RWAs), liquidity and leverage ratios for banks in the European Union (EU).

The exercise monitors the impact of the implementation of the Basel III requirements in the EU, based on the assumption of a full implementation of the Basel III framework as of 31 December 2012 and static balance sheets data. Results show that the Common Equity Tier 1 capital ratio (CET1) of the largest European banks (Group 1 banks) would be on average 8.4% compared to a ratio of 11.5% under current regulation. Therefore, Group 1 banks would face a CET1 capital shortfall of €2.2 billions (bn) to achieve the minimum requirement of 4.5%, and of €70.4 bn to reach the target level of 7.0% or the higher threshold set for global systemically important banks (G-SIBs).

Compared to the previous exercise, based on 30 June 2012 data, the report estimates a decrease in the capital shortfall of €29.1 bn (equivalent to 29.3%). This reduction in the CET1 capital shortfall partly reflects the continuous efforts by European banks following the EBA recapitalisation exercise.

As for the Liquidity Coverage Ratio (LCR), results show that by the end of December 2012, the average LCR of Group 1 banks would have been 109%, already above the 100% requirement to be reached by 2019. In addition, the exercise reveals a shortfall of liquid assets of €225 bn for all banks in the sample.

Note to the editors

• A total of 170 banks participated in the exercise on a voluntary and confidential basis, of which 42 Group 1 banks (with a Tier 1 capital exceeding €3bn and internationally active) and 128 Group 2 banks (all other banks).
• The results of this study are not comparable to industry estimates, as they do not include assumptions regarding banks' future profitability, changes in capital or balance sheet composition, nor further management actions that could be taken in response to the new Basel framework.
• The results are compared with the national implementation of CRD III, as the new EU directive and regulation (the so-called CRD IV package) was not yet finalised at the time of this report's reference date (31 December 2012).